European shares stable as US growth hovers near cliff

European shares ended slightly higher in the final truncated trading session of 2012, but investors were unwilling to take on much risk given the US budget crisis and after strong year-to-date gains.

The FTSEurofirst 300 was up 1.21 points at 1131.77, while the euro zone blue chip index inched up 6.59 points to 2633.44, according to provisional data.

With some European stock exchanges such as the French, Dutch, Spanish and UK markets only trading for half the session on Monday, and those in Germany, Italy, Austria, Denmark, Norway, Sweden and Switzerland recorded light volumes.

Hopes were fading for any sort of broad fiscal deal in the US, with only a few hours of legislative time scheduled in which to act if an agreement materialises to avert the tax hikes and spending cuts set to come into force automatically in January.

But most of the few traders still at their desks had already closed positions heading in to the year end, and financial markets are largely anticipating that US politicians will compromise eventually, given the damage the automatic measures would do to the US economy.

"There are very few deals being done and there are few sellers out there with most of us having flattened our positions in the build up to Christmas," a London-based trader said.

"Emphasis is shifting from prevention towards retrospective measures in the United States, but it will be interesting to see how Wall Street reacts and what happens when traders get back to their desk in the new-year," he said.

Related Quotes

Company Profile

The Eurofirst 300 has just posted seven straight months of gains for the first time since 1999.

Central banks' commitment to stabilising the financial system and attempting to boost growth have favoured beaten down equities. The main catalyst has been European Central Bank president Mario Draghi's promise to do whatever it takes to save the euro.

With euro zone risks fading and investors becoming more confident in stock picking, Europe equity funds continued to enjoy inflows in the week that ended on December 26, taking in fresh money for a fifth week in a row and in 11 of the past 16 weeks, EPFR Global data showed.

After suffering an 84 per cent plunge between Oct 2009 and June this year, Athens's benchmark index posted a gain of 32.5 per cent for 2012, outpacing Germany's DAX, up 29.1 per cent.